Slide 1: Other Segments and Corporate Development
Other Segments and Corporate Development Mike Morgan
Slide 2: Agenda
Agenda Terminals Retail Power Acquisition Update TransColorado Dropdown Financing Acquisitions KMR vs. KMP Price Distribution Management Policy 2
Slide 3: Terminals Segment Overview
Terminals Segment Overview (a) CO2 Pipelines Natural 24% Gas Pipelines Liquids 26% Terminals 59% Bulk 17% 41% Products Pipelines 33% (a) 2004 budgeted distributable cash flow before allocation of G&A G&A and interest 3
Slide 4: Terminals Overview
Terminals Overview Liquids Houston 12 terminals Petroleum 38% 36.2MM barrels of storage 72% New Other York 66% in Houston, NY (a) 8% Other 28% Chemical 26% Chicago 20% 8% Bulk 42 terminals 59MM total through-put tonnage OTHER 12% 49 transload terminals ORES/ METALS 12% COAL FERTILIZERS SALT 51
Slide 5: Liquids Terminals Contract Life
Liquids Terminals Contract Life 2 – 3 years average contract life Under 1 year – 19.1% of total revenue 1 – 2 years – 29.1% of total revenue 2 – 3 years – 16.2% of total revenue 3 + years – 35.7% of total revenue 2-3 Years 1-2 Years 16% 29% 3+ Years Under 1 36% Year 19% 5
Slide 6: Terminals Financial Results
Terminals Financial Results Financial Results 2003 Earnings before DD&A $240,776 2004E Earnings before DD&A $256,726 (7% growth) Macro-Growth Factors 2002 2003 Growth Increased Gasoline Demand 8,844MM BPD 8,932MM BPD 1% Increased Distillate Demand 3,761MM BPD 3,869MM BPD 3% Increased Gasoline Import
Slide 7: 2004 Terminals Growth Drivers
2004 Terminals Growth Drivers KMLT Expanded capacity in the Northeast by 300,000 bbls Full year of new KM to Buckeye Pipeline Full year of new tankage in Houston – 300,000 bbls KMBT Soda ash on West Coast up 200,000 tons Petroleum coke up by 250,000 tons Increase in imported fertilizer i
Slide 8: Retail and Power Segments
Retail and Power Segments 2004 Budget NGPL 41% Retail 7% Power KMP 1% 48% Trans- Colorado 3% (a) 2004 budgeted segment earnings before allocation of G&A and interestinterest expense. KMP includes: (i) general partner interest, (ii) earnings from 18 million KMP units and (iii) earnings earnings from
Slide 9: Retail
Retail WYOMING 29% of Meters Totals 21% of Income 241,574 Meters $68.7mm 04E Kirk Ranch Bunker Hill Income NEBRASKA Oil Springs 40% of Meters Huntsman 23% of Income Note: Colorado totals COLORADO include Rocky intrastate pipeline 31% of Meters 2002 2003 2004E Wolf Creek Montrose 56% of Income EBITDA
Slide 10: 2004 KMI Retail Segment Key Drivers
2004 KMI Retail Segment Key Drivers Completion of Montrose to Ouray pipeline and distribution expansion Colorado meter growth Hedging strategy minimizes weather-related margin fluctuations Operational efficiencies from automated schedule/dispatch system and new technologies such as automated meter r
Slide 11: Colorado Growth
KINDER”, MORGAN Colorado Growth ba bile tT) oF ae DW ARDS. Bs Pay. pp | Roaring Fo ror | Valley a 500 meters 0 Ty : : A : be ORCHARD QTY tt Eckert trend ‘cttyy i i i AJUNT A, 1 i a vo Bs : pe oan. S F Is : i ao 4 ib oe i oe i ge oyfinlde i E: : ; i ! ! Teter ime ' favre HenGWavevatenal ale fmiciarec
Slide 12: Small Power Portfolio, 1% of KMI
Small Power Portfolio, 1% of KMI Capacity Owner- Type of Counter- Contract 2004E Plant (Mw) ship Contract Party Expiration ($mm) Notes Equity Interest: Ft. Lupton 272 50% Toll PSCo 2009, 2019 (a) Greeley 32 100% PPA PSCo 2011 (b) Sithe 72 33.5% Toll PSCo 2013 (c) Total Colorado 376 $8.7 Preferred In
Slide 13: Other Items
Other Items Turbines To sell at beginning of 2003: − 1 7EA − 6 LM6000s − Associated Equipment Progress − Sold 1 LM6000 to 3rd party − No gain or loss recognized on sale − Will sell 2 LM6000s at same price to CO2 (mid year 2004) − Pursuing leads on 4 remaining $29.4 million Q4 after-tax revaluati
Slide 14: KMP 2003 Acquisitions
KMP 2003 Acquisitions Acquisition in Every Business Segment Value Segment Date ($ millions) Red Cedar Natural Gas Q3 $10 CO2 – 42.5% Yates, 12.75% SACROC CO2 Q4, Q2 254 Shell West Coast Terminals Products Q4 28 Mid-Tex Storage Natural Gas Q4 18 Rancho Pipeline Natural Gas Q4 30 Southeast Terminals P
Slide 15: TransColorado: Asset has been Stabilized
TransColorado: Asset has been Stabilized Long-Term Contracts in Place Reduced Exposure to Differentials Contract Capacity Exp. Min. 450,000 Customer mmcf/d Date Rate 400,000 Not 350,000 Contracted Customer A 10,000 3/05 $.07 300,000 Extension 250,000 Under Customer B 25,000 12/07 $.05 200,000 Negoti
Slide 16: TransColorado: Potential Dropdown in 2004
TransColorado: Potential Dropdown in 2004 KMI 2004E Segment Income $26.1 mm Post expansion EBITDA > $32 mm FERC Approval Expected 2Q 2004 Expansion Completion 3Q 2004 Estimated Dropdown Timing 2Q-3Q 2004 Process: (1) KMI and KMR boards hire independent counsel, banks, etc (2) Approval by both KMI an
Slide 17: GP Participation has Increased with Success
GP Participation has Increased with Success KMP $940 Distribution General Limited L.P. Share Per LP Unit Partner Partner $827 G.P. Share (a) (b) $701 Tier I $0.00 to 2% 98% $548 $0.605 Tier II $0.605 to 15% 85% $333 $0.715 41% 41% $198 40% Tier III $0.715 to 25% 75% $153 38% $0.935 $30 34% $17 25% 2
Slide 18: Cost of Capital Substantially Below Acquisition Multiples
Cost of Capital Substantially Below Acquisition Multiples Cost of Equity Cost of Debt Nominal Yield 6.0% 10-year Fixed (50%) 6.5% GP Gross-Up 4.2% 10-year Floating (50%) 4.5% Pre-Tax Cost of Equity 10.2% Pre-Tax Cost of Debt 5.5% 60% 40% Weighted Average Cost of Capital = 8.3% VS. Acquisition multip
Slide 19: KMP Acquisition Success More Than Cost of Capital
KMP Acquisition Success More Than Cost of Capital G&A Cost Reductions Tejas: 87 employees GATX: 121 employees Santa Fe: 104 employees Synergies with Existing Asset Base Tejas interconnections with KMTP Shell Terminals on SFPP Cross-over Customers (e.g. liquids and bulk terminals) Financi
Slide 20: Financing Risk is Low
Financing Risk is Low $3.6 billion in Equity Raised (a) Investors Have Done Well (b) Private 48% 50% $1,000 KMP SPX UTY Public 40% 35% 29% $750 $1,020 30% 27% 26% 15% 19% 20% 15% $500 $1,047 9% 6% 10% 5% 3% 3% -1% $250 $180 $420 $343 0% $13 $258 -1% -8% -4% $163 $181 -7% $0 -10% 1997 1998 1999 2000
Slide 21: KMR Discount/Premium to KMP
KMR Discount/Premium to KMP 4/11/2002, 0% 10% File Initial Proxy 6/25/2002, -1% to Remove File Final 7/24/2002, -3% Exchange Proxy Begin 5% KMR Roadshow 0% 1 1 1 01 2 2 2 2 2 02 3 3 3 3 3 03 -0 l-0 -0 - -0 -0 -0 -0 -0 - -0 -0 -0 -0 p- 0 - ay Ju p ov a n ar ay ul p ov a n ar ay u l ov M -5% Se N J M
Slide 22: EEQ Discount/Premium to EEP
-18% -13% -8% -3% 2% Oc t- 0 2 Source: Bloomberg No v -0 2 -7% De c-0 10/10/02 2 Ja n -0 3 -16% Fe 12/4/02 b -0 3 Ma r-0 3 Ap r-0 3 Ma y -0 3 Ju n-0 3 Ju l- 0 3 Au g -0 3 Se p -0 EEQ Discount/Premium to EEP 3 Oc t- 0 3 No v -0 3 De c-0 3 -3% 12/31/03 22
Slide 23: KMR is a Tax Efficient Way to Own KMP
KMR is a Tax Efficient Way to Own KMP Higher Current Yield When KMR Trades at a Discount KMP Cash Distribution / KMR Price (10 days prior to ex-dividend) Same or Better Terminal Value guarantee upon mandatory purchase events of higher of KMP or KMR value Same Voting Rights as KMP Taxes Share d
Slide 24: KMP Distribution Management
KMP Distribution Management MLP unit holders want a stable and growing distribution Oil production will ultimately begin to decline (2011-2013) KMP Distribution Management Policy Grow coverage Reinvest retained capital in accretive projects to offset decline Viewed in a vacuum, decline may look
Slide 25: CO2 Oil Production as a Stand-Alone Business
CO2 Oil Production as a Stand-Alone Business DCF from Oil Production ($ millions) $300 $300 $250 $250 Reserves $200 $200 $150 $150 SACROC SACROC $100 and Yates $100 and Yates $50 after $50 Reserves $0 $0 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18
Slide 26: Oil Production Impact on Total KMP is Modest
Oil Production Impact on Total KMP is Modest $2,000 Total KMP DCF ($ millions) $1,500 Reserves $1,000 KMP (including $500 SACROC and $2,000 Yates) $0 $1,500 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 19 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 20 SACROC $1,000 and Yates All $500 Other KM
Slide 27: Kinder Morgan
KINDER’ MORGAN